Meet the Visionary Venture Capitalist Inspired by Marx and Keynes
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The kind of investment at a scale needed to improve the likelihood that from those hopeful monsters – you might say that you need a hundred Pets.com to wind up with one Amazon—only speculative excess will provide that funding, where the speculator can win even if the underlying project fails because the focus is not on the expected return of the underlying project. The focus becomes – can I sell this share of stock to someone more optimistic than I before I have to find out what the underlying economic value really is?
One last word on bubbles: It’s not just the object of speculation that matters. It’s also the locus – where the speculation is taking place. If it’s limited to the stock market, and the focus is on potentially productivity-enhancing, living standard-enhancing new stuff -- when it bursts, which it will -- the damage will be limited, because, on the one hand, it’s been limited to a market where shares trade freely and, on the other hand, we’re going to be left with those assets that were funded, even if they were funded to excess. When the bubble infects the banking system, when it corrupts the provision of credit to the ordinary, routine market economy where people work and earn and spend and save, then the consequences can be destructive, even catastrophic. And when the object of speculation has been beach houses in Nevada, we’re not left with anything good to show for it.
LP: You mention ICT and biotech as industries that have done very well as a result of federal funding of scientific research furthered by venture capital. What key industries might benefit from this pattern now?
WJ: We have a very evident set of frustrations. Back in the early 2000s, there was a kind of wave of venture capital investing in nanotechnology. It was way premature. We were too far away from the commercial frontier. Plus, where the innovation is a kind of general purpose material, the real return comes not from actually being able to produce it cheaply and reliably, which, in the case of nanotechnology, wasn’t ready yet, but also finding out what it was actually good for, which is a long-term and challenging process. Back in the ‘70s, for all who saw that great movie The Graduate, plastics were actually commercialized not by venture capital-backed start-ups, but by two of the great corporations of the global economy, General Electric and DuPont, who had the resources and the time to spend thirty years and billions of dollars investing in the manufacture and the exploration of the commercially-significant applications. Nanotech will, no doubt, over the next generation, be a pervasively innovative set of technologies, products, etc. But we’re not ready yet for that massive wave of commercialization.
The other elements of the frustration set are the clean tech/green tech/low-carbon technologies. Again, much science remains to be done (solar cells, batteries, carbon-absorbing materials). Here the frustration in most extreme. The U.S. seems to be the only country in the developed world or even the emerging world in which discussing policy responses to climate change is off the table. So until it’s on the table, we can’t even imagine mobilizing the kind of resources necessary to move that technology to the commercially competitive frontier.
Third, I have to say with great regret, I think the administration made a signal and destructive error in expanding the loan guarantee program and other programs that really cut against what the Defense Department did so well in the ‘50s and ‘60s. It made an error by making very large loan guarantees to high-risk start-ups like Solyndra; like 8123, the battery company; like Tesla, the automobile company -- in effect trying to pick winners. This has never worked well.